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Temporal Clusters in Foreign Direct Investment

  • Jörn Kleinert

Foreign Direct Investment (FDI) occurs in temporal clusters. In contrast to the existing literature, which explains these clusters as being a result of oligopolistic reaction, this paper presents a two-by-two-by-two general equilibrium model of companies which engage in monopolistic competition. These companies can serve a foreign market through exports or by producing abroad. With falling transport and communication costs, the internationalisation of production becomes profitable and, thus, multinational enterprises (MNE) emerge. In this process, FDI of companies from one country occurs in clusters, because an FDI of one company increases the profitability of FDI of any other national competitor.

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File URL: https://www.ifw-kiel.de/pub/kap?selectedYear=1999
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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 930.

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Length: 50 pages
Date of creation: Jun 1999
Date of revision:
Handle: RePEc:kie:kieliw:930
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